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Plan Well, Retire Well

Saving and investing your money

Which Bills Should I Pay First?

You probably heard it on the news: the Federal Reserve Bank says that credit card debt increased in both November and December, which is a good thing for the economy. But what does it mean for you?

January and February can be financially difficult months. If you charged gifts and other holiday purchases, the bills showed up in January. With cold weather, the gas and electric bills are higher. What do you do if you can't pay all your bills?

The long term solution is to reduce your spending. But in the short term, you may have to prioritize who to pay or contact creditors to negotiate different payment arrangements.

Think about these questions to help you decide which bills are most important.

What are my family's basic needs?

You and your family need food, water, heat, and housing. You may be able to get some assistance with these necessities. For example, you might visit a food bank. But these items will probably be your first financial priority, before other kinds of bills and debts.

What will I lose if I don't pay this bill?

If you don't pay a bill, can the lender take something from you? They can if the debt is secured. Car loans, mortgages, and other types of home loans are secured loans.

Other kinds of debt may be secured. Check your loan or credit card agreement to be sure. Rent-to-own isn't really debt, but those items can also be taken if you don't pay.

You might be thinking, "My car's a piece of junk anyway. Let them have it!" But be careful. If your car is repossessed or your home is foreclosed, you could still owe money on that debt if the car or the house is sold for less than what you owe.

How much do you still owe on the loan?

If you only owe a couple of payments on a debt, making the remaining payments may be a priority. Once that debt is paid off, you can use that monthly amount to pay toward other debts.

Do you owe child support, back taxes, or student loans?

These are debts that are not going to go away in most cases, even if you file bankruptcy. There can be serious consequences if you don't pay these debts: property could be seized or have liens placed against them, money could be taken from your paycheck, and income tax refunds could be intercepted. Consider those consequences when you're trying to decide which bills have priority.

This blog post is based on the fact sheet, Managing Your Debt, on University of Illinois Extension's Getting Through Tough Financial Times website. You may want to read the entire fact sheet for more information. You'll find a variety of fact sheets there that may help you assess your financial situation, contact creditors, and talk with other family members about your finances.

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